Selective distribution is a marketing strategy wherein a manufacturer limits the availability of its products to select wholesalers or retailers who meet specific criteria. This strategy ensures that the products are sold only by intermediaries who are equipped to maintain a certain level of service, compliance, or exclusivity, thus maintaining the brand’s image and standards.
Key Criteria of Selective Distribution
Minimum Price Agreements
One of the primary conditions for participation in a selective distribution network can be the agreement to adhere to a minimum resale price. This condition helps in maintaining the product’s market value and avoids destructive price competition among retailers.
Regular Patronage
Distributors often prioritize retailers who regularly purchase products or maintain a minimum annual purchase volume. This assurance of consistent sales helps in stabilizing production planning and inventory management for the manufacturer.
Specific Requirements
Manufacturers may set other conditions such as the capability to provide product-specific customer service, maintaining certain stock levels, or other infrastructural prerequisites. These requirements help in ensuring that the end consumers have a better experience with the product.
Types of Selective Distribution Systems
Qualitative Selective Distribution
Retailers are selected based on qualitative criteria such as service quality, the ambiance of the store, technical expertise, and consumer-targeting capabilities.
Quantitative Selective Distribution
Limits may be set on the number of intermediaries or the geographic areas covered, ensuring market exclusivity and focused penetration.
Examples and Applications
Luxury Goods
Selective distribution is widely used by luxury brands (e.g., Rolex, Louis Vuitton) which limit the availability of their products to maintain an air of exclusivity and premium pricing.
Consumer Electronics
Brands like Apple adopt selective distribution ensuring that authorized sellers provide not just the product but also support services and warranty management.
Historical Context and Evolution
The concept of selective distribution has evolved significantly, particularly with the establishment of formal antitrust laws and fair-trade regulations. Historically, its adoption has been a response to the complexities of balancing market coverage with brand integrity.
Special Considerations
Legal Implications
Selective distribution must navigate the legal frameworks of different countries, particularly those related to antitrust laws and fair trade practices. In the EU, for example, it is regulated to prevent monopolistic practices while ensuring fair competition.
Impact on Brand Image
Maintaining a selective distribution network helps bolster a brand’s unique selling proposition (USP) and mitigates the risks associated with over-saturation of the market.
Related Terms and Concepts
- Exclusive Distribution: A more restrictive form of distribution with very few or even single intermediaries.
- Intensive Distribution: Opposite strategy where a manufacturer aims for maximum market penetration by supplying products to as many outlets as possible.
- Franchising: A distribution strategy where a business allows another to operate using its name and business model in return for a franchise fee.
FAQs
Why do manufacturers use selective distribution?
What are the risks associated with selective distribution?
How does selective distribution benefit consumers?
References
- Porter, M. E. (1985). Competitive Advantage: Creating and Sustaining Superior Performance. Free Press.
- Kotler, P., Keller, K. L. (2016). Marketing Management (15th Edition). Pearson Education.
- European Commission Guidelines on Vertical Restraints.
Summary
Selective distribution is a strategic approach in which manufacturers limit the sale of their products to select wholesalers or retailers meeting specific criteria. It ensures the maintenance of service quality, brand image, and regulated pricing. While beneficial for maintaining product integrity, it must be carefully managed to comply with legal standards and competitive practices.
By clearly defining the parameters of selective distribution, manufacturers can better control the market environment for their products, supporting both the brand and consumer satisfaction.
